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UnitedHealth to be "very selective" exchange user

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Executives at UnitedHealth Group Inc. (NYSE:UNH) seem to be assuming that their company will be participating in a relatively small number of health insurance exchanges in 2014, and that exchange business will have little effect on earnings that year.

The executives talked about UnitedHealth’s views on the Patient Protection and Affordable Care Act exchange program and other topics, such as the effects of proposed federal funding cuts on the company’s Medicare Advantage plan program, today during a conference call.

UnitedHealth held the conference call to review its first-quarter earnings. The company is reporting $1.2 billion in net income for the quarter on $30 billion in revenue, compared with $1.4 billion in net income on $27 billion in revenue for the first quarter of 2012.

Since the U.S. economy slumped in 2008, health insurers have often reported facing shrinking employer plan and overall commercial plan enrollment as a result of layoffs.

UnitedHealth ended the first quarter providing or administering health coverage for a total of 42 million people, compared with 36 million people a year earlier. Commercial plan enrollment grew 3.2 percent, to about 27 million.

The drop in net earnings was due mainly to the fact that the company had benefited from unusually low claims and revenue from an unusual gain in the first quarter of 2012, executives said.

PPACA requires the U.S. Department of Health and Human Services (HHS) to work with state regulators to provide exchanges, or health insurance supermarkets, for residents of all 50 states and the District of Columbia by Oct. 1, with the coverage starting to take effect Oct. 1.

In January, during UnitedHealth’s earnings call for the fourth quarter of 2012, Stephen Hemsley, the president suggested that the company could end up participating in 10 to 25 exchanges.

During the latest call, Hemsley made no predictions about the number of exchanges UnitedHealth will use to distribute its products.

“We will be very selective in where we participate and do not believe the exchanges will be a significant factor for us in our 2014 commercial market outlook,” Hemsley said.

Jeffer Alter, the head of UnitedHealth’s UnitedHealthcare employer and individual business, said the company is making exchange participation decisions on a market-by-market basis and expects to increase the number of exchanges it uses as the exchange program develops.

“It’s not just a 2014 event,” Alter said.

But Gail Boudreaux, the chief executive officer of the parent company, indicated that UnitedHealth is on track to participate in at least some exchanges.

“At this stage, our contracting for the exchange market is going very well, so we feel positive about that,” Boudreaux said.

In response to a question about whether UnitedHealth thinks HHS will get the exchanges open on time, Hemsley said, “We really don’t have any insight on that. We’re presuming it’s going forward as planned and as scheduled.”

Medicare Advantage
The Medicare Advantage program gives private insurers a chance to sell health plans that serve as an alternative to traditional Medicare coverage for older people and people with disabilities who are eligible for Medicare. 

Medicare program managers appear to be negotiating 2014 rates in a way that will lead to a 4 percent net reduction in the level of federal Medicare Advantage funding, Hemsley said.

That’s better than the 8 percent cut managers started with, but significantly below what UnitedHealth is expecting to be a 3 percent increase in the underlying cost of care for Medicare Advantage plan enrollees, Hemsley said. 

“We’ve been clear we will be pulling back from markets,” Hemsley said.

UnitedHealth will be deciding on cutbacks in Medicare Advantages on a market-by-market basis, Hemsley said.

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